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"If they want to fight back against the myriad of Android devices that are on the market, it makes logical sense for a company that's adaptive to the marketplace to pursue a downmarket product," he said.

The device would likely cost about half that of the iPhone 5, which starts at $799, placing it in the $300-$400 price bracket, said Mr Fadaghi.

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Other analysts, meanwhile, have speculated that the device would be smaller than the current model, and have dubbed it the "iPhone mini".

Apple, which released a smaller, cheaper version of its popular iPad tablet in October last year, declined the comment on the reports.

The product would mark the first time Apple has diversified its line of smartphones with different models since launching the original iPhone in 2007. Apple currently sells older models, such as the iPhone 4 and 4S, on its website at a reduced price.

The company faces increasing pressure from rival smartphone-makers such as Samsung whose products run Google's Android operating system, which has recently outpaced Apple in market share.

Mr Fadaghi said the device, which would still be a quality product in keeping with Apple's reputation, would need to come out soon to best capture the second part of the market.

"It would make sense particularly in Australia and particularly in some of the Asian markets to have a downmarket product available as soon as they can."